Govt favours 49% FDI in aviation, to give Rs 150 cr to Air India

NEW DELHI: Accepting a major demand of the cash-strapped aviation industry, the government on Wednesday said it would soon launch the process to allow foreign airlines 49 per cent stake in Indian carriers.

Replying to questions after the 75-minute meeting, Singh said "the question was to allow foreign airlines to participate in FDI. I discussed it with the Finance Minister and he has agreed. We will bring out a note for the Cabinet now."

Allowing foreign airlines to pick up stake in Indian carriers would mark a major policy shift. Earlier foreign airlines were not allowed to invest in Indian airlines though foreign direct investment was allowed.

Asked about the FDI cap on foreign airlines, he said "49 per cent FDI is already there. The question was to allow (international) airlines to participate in the FDI. The CoS (Committee of Secretaries) has also recommended that FDI limit should be raised to 49 per cent."

Singh said FDI was one of the factors which would help the industry to survive the current financial crisis. "We all know that the aviation industry is under a lot of stress."

On Air India, Singh said Rs 150 crore would be "released soon" to the ailing national carrier.

Noting that Air India pilots had recently gone on an agitation, he said "the government has decided to release sufficient funds to pay at least some part of their wages and PLI (productivity-linked incentives)."

Asked by when would the amount be released to Air India, Singh said "we have agreed, the Finance Ministry has agreed. So, it should be released soon. It may not be too long. This is basically money owed to the airline by the government."

Maintaining that this was "just the first part of it" and the total was around Rs 600 crore, he said several Ministries have to bear the cost of VVIP travel. "Some Ministries have approved it, others have to approve it. I will talk to those Ministers also."

To a question on whether Air India would also be allowed to attract foreign investment, the Minister said "Air India is also a company. Let the companies (investors) consider, let the proposals come for FDI, then only we will consider".

On Air India's debt restructuring, he said a formal meeting of the Group of Ministers (GoM) is likely to be convened next week "where we will consider the financial restructuring plan".

Regarding the airlines' demand to allow direct import of jet fuel, the Minister said a Committee of Secretaries has recommended that direct import may be allowed. In that case, the airline companies would not have to pay sales tax.

The issue would also be placed before the GoM, he said. Besides the two Ministers, the crucial meeting was also attended by top officers of other Ministries, banks and the Reserve Bank of India.

Later talking to reporters, SBI Chairman Pratip Chaudhuri said the meeting discussed different options for loan restructuring for Air India.

"Further lending to the airline would be difficult. Therefore, the restructuring plan for Air India and the aviation sector would be discussed at a high-level meeting" later this week, he said.

The debt-ridden carrier has outstanding loans and dues worth Rs 67,520 crore, of which Rs 21,200 is working capital loan, Rs 22,000 crore is long-term loan on fleet acquisition, Rs 4,600 is vendor dues and an accumulated loss of Rs 20,320 crore, according to official figures.

Today's meeting came almost a week after the Central Board of Excise and Customs froze Air India's 11 bank accounts for non-payment of duties worth an estimated Rs 300 crore. An Air India official had then said "we are making on account payments and having the accounts released".

The GoM, at its last meeting in October last year, had decided that it could take a decision only after the RBI gave its nod to the debt restructuring plan.

In the past two months, RBI has had several rounds of meeting with Air India's bankers, who also have met the airline's top brass to finalise the debt recast package.

The GoM is now likely to consider the recommendation by a panel of secretaries to infuse Rs 23,000 crore into the national carrier over the next 10 years, of which Rs 6,600 crore could be invested in the current fiscal ending March 31.

As per its aircraft acquisition plans, Air India has already placed orders for 27 Boeing 787 Dreamliners and decided to take them on sale and leaseback mode. Two of these planes are expected to be delivered by March.

Under the leaseback mode, an airline purchases aircraft from the manufacturer and sells them to a leasing company and then gets the planes back on lease. This erases the aircraft purchase debt from the airline's books.

Two days ago, a US court rejected a plea by American carriers challenging the US Exim Bank's decision to give loan guarantees of USD 1.3 billion to support Air India's fleet acquisition from Boeing.

The Bank has also decided last October to give a USD 2.1 billion preliminary commitment to support future deliveries of Boeing planes to the national carrier, which was legally challenged by the industry body of all major US airlines.